Is the principal in your practice subsidizing the business?
June 6, 2018
Thank goodness it’s May, the flowers are out, the contract is closed and hopefully all end of year figures are ready for analysis. This is a great time of the year for setting budgets, forecasting revenues, controlling expenditure and planning your next steps for personal and business development.
Separating fixed costs such rent from variable costs such as lab fees, helps the entire team to focus on working collectively at achieving the volume of business required to accelerate profits. As revenues increase so do variable costs, but there is a moment when the percentage of revenues left behind after paying the principal for clinical work, the associates, lab fees and materials covers all the operating costs. A business is in profit when it gets past this break-even point and this should be reviewed by separating an owner’s revenues arising clinical work from his or her business profits.
There is always scope to boost performance, and it’s up to a good leader to identify and eliminate the bottlenecks that hinder progress. In his book, The Goal, Dr Eliyahu M. Goldratt invented “The Theory of Constraints” setting out a formula of “five focusing steps” to identify and overcome the bottlenecks that get in the way of business goals.
This 5 step process will help you to take ownership of the problems you face by working on the things you have the authority and the ability to change…
Question 1: Where is your bottleneck?
A chain is only as strong as your weakest link, so this is where you need to concentrate your efforts. From many years of supporting dentists to run more successful dental practices I have found that there is one bottleneck that come up again and again – poverty of the business knowledge and skills required to make savvy business decisions within a myriad of sometimes conflicting commercial and professional requirements.
For example, a bottleneck owner is always busy, always behind and underutilising other downstream resources such as personnel. Where is your bottleneck? It can be handy to use techniques like root cause analysis to find tangible constraints such as a lack of space or funding or intangible constraints such as poor team morale, and then focus energy in the right areas.
Question 2: How can you exploit your bottleneck?
Maximising the output of the bottleneck requires no additional investment and only involves working on ONE resource e.g. a high productivity clinician or a busy manager. Eliminate work that does not add value, minimise interruptions and prioritise!
Question 3: How can you “subordinate” every other decision to the bottleneck?
Any resource that isn’t a bottleneck has, by definition, some excess capacity. Utilise your other team members more effectively to support the bottleneck. This requires no extra investment and still only involves a few resources, typically those that interact directly with the bottleneck.
Question 4: Can you elevate the bottleneck?
Increase throughput of the bottleneck as they limit the outputs of the entire system. You can “elevate” the bottleneck by buying better faster equipment, hiring more staff – if your budget allows it- or changing over to a different process or technology.
Elevation requires investment. Often the untrained business person will do this too quickly – remember to do the free stuff first!
Question 5: What is your next bottleneck?
Repeat. When you’ve solved the problem of one bottleneck, go back and find your next weakest link, then the next, then the next.
Soon you’ll be on a roll and your business will be on a steeper path to success.